Question 1

Although the FASB intends to develop a conceptual framework, no Statements of Financial Accounting Concepts have been issued to date.

Accepted Answer

A) True 
 B)False  False

Question 2

The assumption that a business enterprise will not be sold or liquidated in the near future is known as the

Accepted Answer

A)  economic entity assumption.
B)  monetary unit assumption.
C)  conservatism assumption.
D)  none of these. D

Question 3

Under Statement of Financial Accounting Concepts No.2, which of the following relates to both relevance and reliability?

Accepted Answer

A)  Cost-benefit constraint
B)  Predictive value
C)  Verifiability
D)  Representational faithfulness A

Question 4

Which of the following elements of financial statements is not a component of compre-hensive income?

Accepted Answer

A)  Revenues
B)  Distributions to owners
C)  Losses
D)  Expenses

Question 5

Financial information does not demonstrate consistency when

Accepted Answer

A)  firms in the same industry use different accounting methods to account for the same type of transaction.
B)  a company changes its estimate of the salvage value of a fixed asset.
C)  a company fails to adjust its financial statements for changes in the value of the measuring unit.
D)  none of these.

Question 6

According to the FASB's conceptual framework, which of the following relates to both relevance and reliability? $\begin{array}{lcc} 
& \text { Consistency } & \text { Verifiability } \
\hline a. & \text { Yes } & \text { Yes } \
\text { b. } & \text { Yes } & \text { No } \
\text { c. } & \text { No } & \text { Yes } \
\text { d. } & \text { No } & \text { No }
\end{array}$

Accepted Answer

The answer of According to the FASB's conceptual framework, which...

Question 7

Revenues are realizable when assets received or held are readily convertible into cash or claims to cash.

Accepted Answer

A) True 
 B)False

Question 8

Generally accepted accounting principles

Accepted Answer

A)  are fundamental truths or axioms that can be derived from laws of nature.
B)  derive their authority from legal court proceedings.
C)  derive their credibility and authority from general recognition and acceptance by the accounting profession.
D)  have been specified in detail in the FASB conceptual framework.

Question 9

The two primary qualities that make accounting information useful for decision making are

Accepted Answer

A)  comparability and consistency.
B)  materiality and timeliness.
C)  relevance and reliability.
D)  reliability and comparability.

Question 10

According to Statement of Financial Accounting Concepts No.2, which of the following relates to both relevance and reliability?

Accepted Answer

A)  Materiality
B)  Understandability
C)  Usefulness
D)  All of these

Question 11

According to the FASB's conceptual framework, the calculation of comprehensive income includes which of the following? $\begin{array}{lcc} &\text { Income from } & \text { Distributions } \
& \text { Continuing Operations }& \text { to Owners } \
\text { a. } & \text { Yo } & \text { No } \
\text { b. } & \text { Yes } & \text { No } \
\text { c. } & \text { Yes } & \text { Yes } \
\text { d. } & \text { No } & \text { Yes }
\end{array}$

Accepted Answer

The answer of According to the FASB's conceptual framework, the...

Question 12

Under Statements of Financial Accounting Concepts, comprehensive income includes which of the following? $\begin{array}{lll}&\text { Gains } & \text { Gross Margin } \
\text { a. } & \text { No } & \text { No } \
\text { b. } & \text { No } & \text { Yes } \
\text { c. } & \text { Yes } & \text { No } \
\text { d. } & \text { Yes } & \text { Yes }
\end{array}$

Accepted Answer

The answer of Under Statements of Financial Accounting Concepts, comprehensive...

Question 13

The basic accounting concept that refers to the tendency of accountants to resolve uncertainty in favor of understating assets and revenues and overstating liabilities and expenses is known as the

Accepted Answer

A)  conservatism constraint.
B)  materiality constraint.
C)  substance over form principle.
D)  industry practices constraint.

Question 14

Application of the full disclosure principle

Accepted Answer

A)  is theoretically desirable but not practical because the costs of complete disclosure exceed the benefits.
B)  is violated when important financial information is buried in the notes to the financial statements.
C)  is demonstrated by the use of supplementary information presenting the effects of changing prices.
D)  requires that the financial statements be consistent and comparable.

Question 15

Information is neutral if it

Accepted Answer

A)  provides benefits which are at least equal to the costs of its preparation.
B)  can be compared with similar information about an enterprise at other points in time.
C)  would have no impact on a decision maker.
D)  is free from bias toward a predetermined result.

Question 16

The allowance for doubtful accounts, which appears as a deduction from accounts receivable on a balance sheet and which is based on an estimate of bad debts, is an application of the

Accepted Answer

A)  consistency characteristic.
B)  matching principle.
C)  materiality constraint.
D)  revenue recognition principle.

Question 17

Which of the following statements about materiality is not correct?

Accepted Answer

A)  An item must make a difference or it need not be disclosed.
B)  Materiality is a matter of relative size or importance.
C)  An item is material if its inclusion or omission would influence or change the judgment of a reasonable person.
D)  All of these are correct statements about materiality.

Question 18

The underlying theme of the conceptual framework is

Accepted Answer

A)  decision usefulness.
B)  understandability.
C)  reliability.
D)  comparability.

Question 19

Which of the following is false with regard to the element "comprehensive income"?

Accepted Answer

A)  It is more inclusive than the traditional notion of net income.
B)  It includes net income and all other changes in equity exclusive of owners' invest-ments and distributions to owners.
C)  This concept is not yet being applied in practice.
D)  It excludes prior period adjustments (transactions that relate to previous periods, such as corrections of errors) .

Question 20

The economic entity assumption means that economic activity can be identified with a particular legal entity.

Accepted Answer